Saturday, February 04, 2012

Schumpeterian Waves of Creative Destruction and Turmoil in the Energy Markets from Shale Gas

"Cheap natural gas has also thrown energy markets into turmoil. It is impossible for almost any other source of electric power to compete, especially coal and nuclear. By trimming fuel bills, cheap gas has reduced incentives for energy conservation and efficiency. And it has left solar and wind, despite their own falling costs, heavily dependent on government mandates in California and roughly 30 other states, including Maryland."

Cheap natural gas has also thrown energy markets into turmoil. It is impossible for almost any other source of electric power to compete, especially coal and nuclear. By trimming fuel bills, cheap gas has reduced incentives for energy conservation and efficiency. And it has left solar and wind, despite their own falling costs, heavily dependent on government mandates in California and roughly 30 other states, including Maryland.

How dim can people be? The shale gas 'glut' is causing most of the shale producers to lose massive amounts of money and to run cash flow negative. And there is no way that gas can replace coal for energy generation because if demand goes up so does the price.

>>> Dominic ion power just signed up for a huge windfarm off Virginia.

Then either1) Their corporate types are absolute, unmitigated morons.2) They are getting some insane financial kickbacks/tax breaks/funny money that it makes it profitable for them in the short run, even if it winds up just passing on the bad bull to taxpayers and consumers and idiot windmill producers.

What, in God's name, are you doing on an economics blog spouting such imbecilic twaddle?

It is hardly twaddle. Coal is the cheapest source of electric power by far. The WP idiots think that low gas prices can continue even though shale producers need three times the current wellhead price to break even. My argument is one of basic economics. The only way that the producers can keep producing is for them to get a much higher price, particularly as the low hanging fruit is picked and the marginal production is in marginal formations.

It's not like you've got even a noob's excuse here.

No excuse is required. My argument is sound. I would rather own a coal company right now than a shale gas producer. I suspect that the same is true of most rational investors.

This is true for ANYTHING, if the supply does not change and the demand goes up, the price will respond by going up to match.

But that means that the WP story is crap. Which was my point. Mark loves to hype up hot stories when they fit his narrative of optimism. Sadly, most of the readers here are not very thoughtful and go along with the hype. But eventually we have reality intervene and those who bought into the fairy tale get what they deserve.

Coal might not be the cheapest source of power if you measure the cost at the same level of cleanliness as wind or solar.

Wind or solar is not the cheapest source of power if it has to provide the same continuous level of power as coal does.

The least expensive total solution is most likely some mix of the two.

You all claim that business hates uncertainty. Natural gas prices now are very low. As vange points out, they may be so low that a shakeout is coming. Wind power is Ginger to cost Dominion more than twice as Mich as conventional sources -----today. But there is no certainty that will be true by the time offshore turbines are built. Once built, the cost of wind power will be very stable, even if the actual day to day production is not.

I think you wind up with a situation where your base load is coal fired, and that base load is reduced as wind is available, and with gas continuing as peak load.

I do not believe that it is entirely clear whether the hidden costs and subsidies of burning coal exceed the hidden costs and subsidies for wind and solar. But I do know that as long as people dismiss wind and solar out of hand, for any and all applications, then we will never learn the truth of the matter.

It is no big deal to switch from LPG to gasoline. How many times have you put propane in it? Propane is not cheap.

CNG is not so easy, and LNG for autos is impractical.

Both of my hybrids have been reliable and practical, based on life cycle costs. And it is not only fuel economy. The older one still has the original brakes after 160,000 miles, thanks to regenerative braking. The engine hours are equivalent to a non- hybrid car with 110,000 miles, because the engine is off much of the time.

Whether considering power production or auto costs, you are kidding yourself if you do not consider all the costs, including eventual disposal.

Coal might not be the cheapest source of power if you measure the cost at the same level of cleanliness as wind or solar.

It is the cheapest. Period. Solar and wind do not provide a positive return on the energy invested and have serious environmental issues associated with them.

Wind or solar is not the cheapest source of power if it has to provide the same continuous level of power as coal does.

The least expensive total solution is most likely some mix of the two.

No. Neither is economically viable. And neither is environmentally friendly.

You all claim that business hates uncertainty. Natural gas prices now are very low. As vange points out, they may be so low that a shakeout is coming. Wind power is Ginger to cost Dominion more than twice as Mich as conventional sources -----today. But there is no certainty that will be true by the time offshore turbines are built. Once built, the cost of wind power will be very stable, even if the actual day to day production is not.

The European countries have already shown that the offshore turbines are massive white elephants that destroy real jobs in the economy and do nothing to reduce the use of fossil fuels. The clean energy proponents are still charlatans selling utopian visions to confused simpletons.

Mike: that would be a good example, if what sierra club does is actually good for the environment. To my mind that is a dubious prospect. Their attitude seems to be, more conservation is better, regardless of costs. This results in a waste of rewasteful

Excessive conservation is wasteful. And so is mindless rejection of all conservation.

Gee, take a deep breath and relax. The same was said when the first autos were produced.

How many jobs does mental retardation from mercury accumulation cost?

I don't disagree that the money spent on offshore wind might have been better spent, but since we do not have enough agreed upon evidence for all the actual costs out there, we have no way of knowing what other expenditures might have been better.

We are left with your ( mostly unsubstantiated) idea that something else would have been better, eithout subjecting it to equal scrutiny.

The interesting thing is here in Maryland, the utilities (primarily coal fired) are allowed to use a differential pricing scheme. So - I used about 30% less electricity in December than in November thanks mainly to an uncharacteristically warm month. My electric bill doubled though - and you can't tell me it's due to scarcity and a natural increase in prices through market mechanism because everybody used less power and energy during the month. It's pure money harvesting from captive customers.

That, or perhaps the rate schedule is intended to be punitive to us. Hard to tell in the wake of Gov. Martin O'Malley proposing a new 6.5% sales tax on gasoline... this as the average price in MD hovers just a bit under $4/gallon. If this keeps up we're going to have to look at moving, it's ridiculous to have a $300 electric bill on a gas heated house, where you hardly used any electricity in a month.

"But I do know that as long as people dismiss wind and solar out of hand, for any and all applications, then we will never learn the truth of the matter."

The truth has been known for a long time by most thoughtful people, and the indisputable evidence is now apparent to everyone.

""Before government subsidies for the giant metals were cut or eliminated in many areas, wind farms were an energy boom business. But in the post-tax subsidy era, the costs of maintaining and operating wind turbines far outweighs the minimal power they generate in many areas, which has left a patchwork of wind turbine graveyards in many of the most popular wind farming areas of the US."

============No, I don't, but I'm sure there are some reasonably good estimates out there. My point is that saying g wind power is a job killer is a non argument, because other sources have the same issue.

I have not heard that wind energy is a net energy loss, although I could believe it because of the heavy machinery involved. But, if you count the embedded energy there, what a out the embedded energy in the machines it takes to mine and move coal?

I know, the delivered energy density is higher, even so, you have a source?

While intrinsic energy costs are going down here in the great state of California (with the second highest unemployment rate and fifth highest taxes vs personal income) we are mandating 'green'energy so our energy bills will be goin up instead of down. Many years from now economists will be writing about the utter politcal stupidity of this un-great state.

Gee, take a deep breath and relax. The same was said when the first autos were produced.

Actually, no. The first autos were not subsidized. The companies who could meet a need did well. But more than 95% of them wound up going bankrupt. Offshore wind power does not meet a consumer need in a free market as autos did. It has no chance of survival in a free market because it is too expensive. If you look to Europe you will find what happens when subsidies for such production are cut.

How do you figure that? The turbines prodeced some power, which otherwise would have come from what, solar and nukes?

Look at the Dutch data. To make up for the variation in baseline output the Dutch use inefficient open-cycle gas turbines that are always spinning. When the wind blows too hard they can't shut off the baseline producers so they export the excess to Sweden which has no problem using the power because it uses hydro for much of its supply and that is easy to turn down. As a result, the Dutch have the most expensive power in the EU but have not done anything to reduce their CO2 output.

http://www.clepair.net/windSchiphol.html

http://www.clepair.net/windefficiency.html

After its horrible experience with wind power the government has reduced subsidies for wind power and is now encouraging companies to look to nuclear as part of the energy solution.

Besides, since everyone knows there is no such thing as global warming, fossil fuel pollution damage, or risk of running out, who cares if wind power reduces fossil fuel use?

I agree. CO2 emissions are not important and should not be a factor when coming up with energy solutions. But idiot bureaucrats do care about CO2 emissions and are trying to use them as a factor. The funny thing is that they forgot about the energy returns on the entire system and have wound up screwing up both the economic and the environmental goals.

"How many jobs does mental retardation from mercury accumulation cost?"

?? How many? Do you know?

He doesn't. He is banking on the discredited linear-no-threshold model for arguments that are not supported by real world data in which dose counts. Greens ignore the role of evolution and assume if something is very harmful at high dosages it will be still be harmful at low doses, even if trace amounts are actually essential for the well being of the organism and we know that organisms have learned how to tolerate low levels or exposure. When I was in high school we were shown a model that linked particulate concentration to mortality rates. When I ran the numbers and applied them to the data from the 1960s, I found that according to the model I found that all of the deaths in one of the years were attributable to the level of particulates. Even though the model was obviously very wrong most people seemed to accept it. As I got older I realized that to most people narrative was much more important than fact. That explains why so many people are so stupid when it comes to understanding economics, politics, and science.

You are pretty sure ofYourself. I think they all have issues and no one knows the real costs.

I doubt you are correct about negative energy costs for wind and solar, but even if you are right there are still places where they pay.

Besides, You think coal would be energy positive, if they had to put the mountain tops back where they found them?

Why would anyone have to put back the mountain? All that is needed is to reclaim the area. Can you tell that this was a tar sands mine? And even if you did, what difference does it make when it is not your property and it is still useful to others?

I depend on no such thing. I agree that the greens have no concept of the economic consequences of insisting on zero pollution.

You are however wrong about low doses. Low doses of bioaccumulators are hazardous. So are low doses of compounds that act more by chance than by toxicity. If you put x number of particles of asbestos in contact with lungs you will get y intances in which the asbestos triggers a reaction. It is the number of particles, not the concentration that counts, asbestos being basically inert.

If you have 20 PPM of one chemical and 40 PPM of another, you cannot say that it is twice as likely that one chemical killed the fish.

I spent ten years as an environmental analytical chemist, measuring real world data, so I am data driven. I came to the conclusion that greens are making env ironmental conditions WORSE by wasting resources on too much clean up of some things and not enough on others.

Fanatical greens and fanatical anti-greens are both wasteful of other peoples resources, and neither attitude should be tolerated.

It is a simple situation: the optimum pollution to have is whatever amount causes damages equal to what is spent on prevention. That changes over time, so no ppm standard is correct. Cleanup costs change and damage estimates change, and therefore the correct pollution to tolerate changes.

I agree that we are spending too much on some things because of wild damage estimates, and too much application of the precautionary principle.But that in no way suggests we should be spending nothing.

This is a situation in which NO ONE benefits if EITHER side "wins the argument" with bad data. And the data is constantly changing, as we learn more.

Money is a good proxy for resources used. If you are spending too much on pollution damage or too much on pollution control, then you are wasting money and resources, and that is never " green".

Obviously we cannot extract resources AND have everything just as before, but that is the fantasy greens chase. No one benefits from an adversarial position on this. There are a few right answer and a bunch of wrong ones. We may as well agree on a way to seek out the right ones.

Rather than a flat declaration that wind energy is never and could never be cost effective ( demonstrably false) we ought to be seeking the conditions where it does work, and not push it where it doesn't.

Our Air Cleaner business. It control of your air quality by reducing pollutants that can contribute to headache, lung irritation and fatigue as well as more long-term conditions such as asthma, allergies and infectious diseases.

"Rather than a flat declaration that wind energy is never and could never be cost effective ( demonstrablyfalse) we ought to be seeking the conditions where it does work, and not push it where it doesn't."

MS Beluga SkySails believes its fuel bill will be cut by £800 ($1,560) a day.

Using sails is economic. That is very different than what we are talking about here.

Windmills are still in use today, with various farms throughout the world using windmills to pump water in remote locations where electricity is unavailable ...

Sure they are. But those windmills don't have very expensive rare earth magnets that cost a fortune and don't generate electricity that goes into the grid. Which is the type of windmills that we are arguing about.

Renewable energy does not have to be a complete solution to be economically viable in some conditions.

http://www.youtube.com/watch?v=NNbNNSDljGI

Nice toy. How many have been sold? If the answer if very few than it is not a solution that the market is interested in because there is no consumer demand at this time.

http://www.google.com/products?q=marine+wind+turbines&hl=en

This shows very little. Given the fact that there are large subsidies out there we have no reason not to expect many products to take advantage of the subsidies. And yes, there are niche applications that will make sense even for wind. But that is not what the wind power debate is about.

"The IPCC is a scientific body. ..........It does not conduct any research nor does it monitor climate related data or parameters."

It does not do any research. But it does use 'scientists' to evaluate what is going on. Those 'scientists' have shown to be just as ideology oriented and willing to ignore facts to pursue political goals as any politician.

Yes, I knew I should have specifically excluded tiny niche applications.

Pumping water in remote locations where other power sources are unavailable or impractical is the one application where small windmills makes sense, but that has been the case for hundreds of years. The key phrase is "where electricity isn't available". Where it is, these wind things get ditched.

Skysails? You're not calling that cost effective, are you? There's no evidence that it is. It appears that after four years, they have made exactly one sale, to a Dutch fishing company, in a pilot program funded by European Fisheries Fund (EFF) and the German state of Mecklenburg-Western Pomerania - hardly a ringing endorsement.

If this is such a money saving idea, why aren't shippers jumping at it? After all, $1500/day in fuel savings would quickly add up to $billions. What's the problem? Are they waiting for the taxpayer dollars to flow?

Keep in mind that all ships used to use wind power to get around, and there's some reason why it fell out of favor. Do you know what it was? I have a feeling that reason still exists.

I suspect that one of the strongest supporters of this sail idea are Somali pirate groups, who would see ships approaching from much further away.